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October 6, 2010

Gold Fever Spreads as Price Hits New Highs

Gold vaults reopened; wealthy buying by the ton

Gold has always been the port to which people flee in economic storms. One might ask if the current economy, then, is the perfect storm, because the price of gold continues to set new records. For two days in a row and eight trading days out of the last 10, according to a Reuters report, gold topped its all-time highs, with spot gold rising to $1,349.80 before dropping back just a bit to $1,347.40; U.S. futures rose to $1,351. During all this madness, the dollar was seeking lower levels and the volatility in the currency market drove buyers to safer havens—or so they hope.

In a Reuters report, Frank McGhee, head precious metals trader at Integrated Brokerage Services, theorized that expected monetary easing in the United States will result in major devaluation on the dollar, which benefits gold. And in another report, Ole Hansen, senior manager at Saxo Bank, said, "Considering what is going on, (the price) is justified and dollar weakness is really the big driver right now. If you look at gold in euro terms, it's still trading sideways. It's not as if it's really having a life of its own."

The fever for gold has led to the wealthy buying it by the ton, says Reuters, and the need for banks to find new vaults in which to store clients’ stores of the precious metal. JP Morgan Chase has reopened its New York gold vault—an underground secure storage facility that was mothballed, according to the Financial Times, in the 1990s. The bank also recently built a new vault in Singapore, and London may become the home for new vaults from Deutsche Bank and Barclays Capital.

Even though financier George Soros has called gold “the ultimate bubble,” and private bankers advise their clients against it, the siren song of gold continues to insinuate itself into the markets as investors flee uncertain choices. According to one Reuters report, U.S. Trust President Keith Banks, at the Reuters Global Private Banking Summit in New York, said, "We're not really recommending gold right now, just because it's at a level where there are things driving it beyond the types of things (where) that we can add a lot of value."

Up 8% in the past month and 23% so far this year, gold is still gleaming in the eyes of investors—even if they don’t actually take possession of it. The gold ETF (SP:GLD) has been rising steadily as well, with Wednesday’s midday high at 131.82, proving that investors don’t have to hold it in their hands to feel that an investment in gold is the thing to do right now.

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